Federal deduction · updated
No Tax on Overtime Calculator
You can deduct only the “half” of time-and-a-half that the FLSA requires — up to $12,500 a year ($25,000 on a joint return) for tax years 2025 through 2028, reduced by $100 for every full $1,000 of income above $150,000 ($300,000 joint).
Your overtime week
Bonus, shift pay & state options
$1,650.00
50 h worked · 10 h at 1.5×
| Straight-time pay (all hours + bonus) | $1,500.00 |
|---|---|
| Overtime premium at 1.5× | $150.00 |
| Double-time premium at 2× | $0.00 |
| Total for the week | $1,650.00 |
Your no-tax-on-overtime deduction
Choose a state to see how it taxes overtime.
What counts as qualified overtime
IRC § 225 allows a deduction for “overtime compensation … required under section 7 of the Fair Labor Standards Act … that is in excess of the regular rate.”[1] The IRS turns that into a weekly formula: hours over 40 in the workweek × ½ × your FLSA regular rate.[2]
- Only the premium. The straight-time part of an overtime hour is ordinary pay. At $20 an hour, ten overtime hours pay $300, of which $100 is qualified.
- Only what the FLSA requires. Overtime paid under a union contract, company policy or state law alone — California daily overtime, Kentucky’s seventh-day rule, holiday premiums, hours over 35 — does not count. Double time counts only up to the half-time premium.[2]
- Only FLSA-eligible employees. Exempt salaried staff, outside sales, many transport workers and others outside FLSA overtime get nothing, whatever their contract says.
- It is a deduction, not an exclusion. Overtime is still subject to income tax withholding, Social Security and Medicare. You can take it whether or not you itemize.
The limits, line by line
Schedule 1-A, Part III works it out: take your qualified overtime, cap it at $12,500 ($25,000 if married filing jointly), subtract $150,000 ($300,000) from your modified AGI, divide the excess by $1,000 dropping any fraction, and multiply by $100. Subtract that from the capped amount.[3]
| Case | Qualified OT | Reduction | Deduction |
|---|---|---|---|
| Single, $30/h, 10 OT hours × 50 weeks, MAGI $95,000 | $7,500 | $0 | $7,500 |
| Single, $16,000 qualified, MAGI $182,400 | $16,000 | $3,200 | $9,300 |
| Joint, $18,000 qualified, MAGI $320,000 | $18,000 | $2,000 | $16,000 |
In the first case the $7,500 deduction lowers 2026 federal income tax by about $1,650.00 at the 22% bracket (standard deduction, before credits).[4] In the second, $32,400 over the threshold is 32 full steps of $1,000, so the $12,500 cap shrinks by $3,200. A joint couple $20,000 over loses $2,000 of their $18,000.
Married people must file jointly; married filing separately gets no deduction. Each person who earned the overtime needs a Social Security number valid for work. The deduction ends after tax year 2028.[1]
Your W-2: code TT, and the 2025 shortcuts
From tax year 2026 employers must report qualified overtime in box 12 with code TT (or box 14 of Form 1099-MISC / box 1d of 1099-NEC in the rare misclassified case). The IRS says you may deduct only what is reported there; if it is missing or too low, ask for a corrected W-2c — a substitute Form 4852 does not work.[2] The amount in box 12 is the full qualified premium; the caps above are applied on your return, not by your employer.
For 2025 only, Notice 2025-69 let workers estimate from pay records: if a statement shows your combined time-and-a-half pay, one-third of it is the premium; if overtime was paid at double time, one-quarter of the combined double-time pay approximates the FLSA premium.[5] At $20 an hour, 10 hours of time and a half is $300.00; one-third is $100.00, exactly the half-time premium.
To see the benefit in each paycheck rather than at filing, the 2026 Form W-4 lets you enter the expected deduction in step 4(b).[2] Whether your state also lets you deduct it is a separate question — see overtime tax by state.
Sources
- 26 U.S.C. § 225 — limits, phase-out, joint-return and SSN rules, 2028 end date.
- IRS FS-2026-13 (August 2026) — formula, non-FLSA premiums, code TT, W-2c, W-4.
- Schedule 1-A (Form 1040), Part III lines 14–21.
- Rev. Proc. 2025-32 — 2026 brackets and standard deduction.
- IRS Notice 2025-69 — 2025 estimation methods.